The Euro STOXX 50 edged above technical resistance around
2,722, corresponding to the 100 percent Fibonacci projection of
a rally in the second half of 2011, around which the index has
hovered for the better part of this month.

"We've been hugging the resistance for several weeks now and
that really shows the lack of sellers," Anders Soderberg, chief
technical analyst at SEB in Stockholm.

"I think we're going to see one more high within this
sequence before we make a more profound correction."

He set 2,835 points, which is the 78.6 percent Fibonacci
retracement of the decline in 2011, as the next resistance.

When the pullback materialises, Soderberg expects the index
to head towards a trend line broken in mid-November, currently
in the 2,585 region, or further down to a 2,425 low hit in
November.

Curbing gains on the index was Finnish handset maker Nokia
, down 5.6 percent. It extended a selloff in the
previous session as UBS cut its estimates for the firm after it
axed its annual dividend payment for the first time against
falling sales.

Also weighing on the handset maker are outlook comments from
market leader Samsung Electronics, which said it
expects the global smartphone market to shrink in the first
quarter from the seasonally strong fourth quarter.

The broader FTSEurofirst 300 index of pan-European
shares was up 0.1 percent at 1,171.83 points, having trimmed
gains after data showing a bigger than expected contraction in
the British economy.

The index is up around 27 percent since late July as
crisis-fighting measures from global central banks have allayed
concerns of a euro zone break-up and global recession, driving
down bond yields and pushing investors towards higher-yielding
equities.

TAKING PROFIT

The sharp rally had driven up valuation multiples, leading
some investors to consider taking profits on their European
equity holdings given that earnings momentum, while it was
improving, remained in negative territory.

The MSCI Europe index traded at 11.7 times its
expected earnings for the next 12 months, a level last seen in
2010.

"The tail risk has been removed but that has been reflected
broadly in equity markets," Stewart Richardson, chief investment
office of RMG Wealth Management.

"As a result, to see much more upside from here you'd have
to see a good level of economic and therefore corporate earnings
growth in Europe. And we don't expect that in the short term."

Richardson started to take profit on his equity holdings one
and a half weeks ago, spotting signs of fatigue on some key
indexes, and expected markets to retrace part of their recent
rally in the next 6-7 weeks.

He has brought his European equity holdings to minimum
levels, while he was "neutral" on shares listed in the United
States, where economic momentum has been improving.

"We think there could be better opportunities to buy
equities on a 5 or 7 percent correction from here," he added.

The S&P 500, a U.S. benchmark watched by global
investors, has traded in "overbought" territory since Jan. 16,
based on its 14-day exponential Relative Strength Index, a
momentum indicator.